| | The Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. | | | II. | | Composition. | | | | The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors (as defined by all applicable rules and regulations of the Securities and Exchange Commission (the “Commission”), Nasdaq and any other appropriate body), and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgement as a member of the Committee. All members of the Committee should have a working familiarity with basic finance and accounting practices, including being able to read and understand financial statements, and at least one member of the Committee shall have accounting or related financial management expertise. The Committee shall endeavor to have, as one of its members, an individual who qualifies as an “audit committee financial expert” in compliance with the criteria established by the Commission and other relevant regulations at the time the regulations require disclosure of the existence of an audit committee financial expert. The existence of such audit |
The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors (as defined by all applicable rules and regulations of the Securities and Exchange Commission (the “Commission”), Nasdaq and any other appropriate body), and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. All members of the Committee should have a working familiarity with basic finance and accounting practices, including being able to read and understand financial statements, and at least one member of the Committee shall have accounting or related financial management expertise. The Committee shall endeavor to have, as one of its members, an individual who qualifies as an “audit committee financial expert” in compliance with the criteria established by the Commission and other relevant regulations at the time the regulations require disclosure of the existence of an audit committee financial expert. The existence of such audit committee financial expert, including his or her name and whether or not he or she is independent, or the lack of an audit committee financial expert, shall be disclosed in the Corporation’s periodic filings as required by the Commission. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant. The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board and shall serve until the next annual organizational meeting of the Board or until their successors have been duly elected and qualified. The Board may remove or replace Committee members at its discretion. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. 1 A-1
| | committee financial expert, including his or her name and whether or not he or she is independent, or the lack of an audit committee financial expert, shall be disclosed in the Corporation’s periodic filings as required by the Commission. | III. | Meetings. |
The Committee shall meet in person or telephonically no less than four times during each fiscal year and may, in its discretion, delegate specific responsibilities to a subcommittee comprised of one or more members of the Committee. The Committee may request any officer or employee of the Corporation or the Corporation’s outside counsel or independent accountant to attend any meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Committee may, in its discretion, delegate specific responsibilities to a subcommittee comprised of one or more members of the Committee. As part of its job to foster open communication, the Committee should meet at least annually with management, and the independent accountants in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. | | IV. | Responsibilities and Duties. |
To fulfill its responsibilities and duties, the Committee is expected to: | | | | | Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant. | | | | The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board and shall serve until the next annual organizational meeting of the Board or until their successors have been duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. | | III. | | Meetings. | | | | The Committee shall meet at least two times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee should meet at least annually with management, and the independent accountants in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. | | IV. | | Responsibilities and Duties. | | | | To fulfill its responsibilities and duties, the Committee is expected to: |
| 1. | | Provide an open avenue of communication between the Corporation, the independent accountants and the Board. | | | 2. | | Review the Committee’s charter at lest annually and recommend to the Board any necessary or desirable amendments as conditions may dictate. | | | 3. | | Maintain sole authority and responsibility for hiring and firing the independent accountants, and maintain direct responsibility for the appointment, compensation, and oversight of the independent accountants’ work (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent accountants shall report directly to the Committee. | | | 4. | 3. | Assess the effectiveness of the Corporation’s internal control environment, and evaluate the need for an internal audit function; Discussdiscuss with management any significant deficiencies in internal controls that have been identified by the Chief Executive Officer or Chief Financial Officer which could adversely affect the Corporation’s ability to record, process, summarize or report financial data. |
2
| | 5. | 4. | Confirm and assure the independence of the internal audit function and the independent accountant, including considering whether the independent accountant’s performance of permissible non-audit services and the compensations received for such services is compatible with the independent accountant’s independence. | | | 6. | 5. | Review and pre-approve the performance ofindependent accountant’s annual engagement letter and all audit and non-audit accounting services to be performed by the independent accountant (other than with respect to de minimus exceptions permitted by the Sarbanes-Oxley Act of 2002), to the extent such services are permitted under applicable rules and regulation. By action of the Committee, the authority to grant pre-approval may be delegated to one or more designated members of the Committee who are independent members of the Board, with any such pre-approval to be reported to the Committee at its next regularly scheduled meeting. Approval of non-audit services shall be disclosed to investor in the Corporation’s periodic reports required by Section 13(a) of the Securities Exchange Act of 1934, as amended. | | | 7. | 6. | Inquire of management and the independent accountants about significant risks or exposures and assess the steps management has taken to minimize such risk to the Corporation. | | | 8. | 7. | Consider, in consultation with the independent accountant, the audit scope and plan of the independent accountant. | | | 9. | 8. | Consider and review with the independent accountant: |
| | | | (a) | | The adequacy of the Corporation’s internal controls, including computerized information system controls and security. |
| | | | (b) | | Any related significant findings and recommendations of the independent accountant together with management’s responses thereto. |
A-2
| | | | 10. | 9. | Review the following items with management and the independent accountant at the completion of the annual examination and recommend to the Board whether the financial statements should be included in the Annual Report onForm 10-K: |
| | | | (a) | | The Corporation’s annual financial statements and related footnotes. |
| | | | (b) | | The independent accountant’s audit of the financial statements and his or her report thereof. |
| | | | (c) | | Any significant changes required in the independent accountant’s audit plan. |
| | | | (d) | | Any serious difficulties or disputes with management encountered during the course of the audit. |
| | | | (e) | | Other matters related to the conduct of the audit which are to be communicated to the Committee under Public Company Accounting Oversight Board AU Section 380,CommunicationSAS numbers 61 and 90. |
| | | | 10. | Review and discuss with Audit Committees.management and the independent accountant significant financial reporting issues and judgments made in connection with the preparation of the Corporation’s financial statements, including any significant changes in the Corporation’s selection or application of accounting principles, any major issues as to the adequacy of the Corporation’s internal controls and any steps adopted in light of material control deficiencies. |
| | 11. | | Review with management, and if appropriate, with the independent accountants, the interim financial results that are filed with the Commission or other regulators. |
3
| | 12. | | Review with management legal and regulatory matters that may have a material impact on the financial statements, related companyCorporation compliance policies, and programs and reports received from regulators. | | | 13. | | Review the Corporation’s critical accounting policies and estimates, all alternative treatments of financial information within GAAP discussed between the independent accounts and management, and all other material written communications between the independent accounts and management. | | | 14. | | Review the internal controls report prepared by management for insertion into the annual report and the independent accountant’s attestation on the assertions of management that are contained in the internal controls report. | | | 15. | Review with management and the independent accountant disclosures by the Corporation’s Chief Executive Officer and Chief Financial Officer in connection with their personal certification of the Corporation’s periodic reports or annual financial statements. | | | 16. | Prepare and approve the audit committee report included in the Corporation’s annual proxy statement. | | | 17. | Ensure there is a process for the confidential, anonymous submission by the Corporation’s employees of concerns regarding questionable accounting and auditing matters. | | | 16. | 18. | Ensure procedures are established for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, auditing, and internal accounting controls. | | | 17. | 19. | Review and approve (with the concurrence of a majority of the disinterested members of the Board) any related party and affiliated party transactions. | | | 18. | 20. | Report Committee actions to the Board with such recommendations as the Committee may deem appropriate. | | | 19. | 21. | The Committee shall have the power to conduct or authorize investigations into any matters within the Committee’s scope of responsibilities. | | | 20. | 22. | The Committee has the authority to engage and determine funding for outside legal, accounting or other advisors and to obtain advice and assistance from such outside advisors as deemed appropriate to perform its duties and responsibilities. | | | 21.23. | Report to the Board as it deems appropriate and as the Board may request. |
A-3
| | | | 24. | Review the Committee’s charter at least annually and recommend to the Board any necessary or desirable amendments as conditions may dictate. | | | 25. | Annually, perform a self-assessment relative to the Audit Committee’s purpose, duties and responsibilities outlined herein. | | | 26. | The Committee will perform such other functions as assigned by law, the Corporation’s charter or bylaws or the Board. |
V. Limitation of Audit Committee’s Role. It is not the duty of the Committee to plan or conduct audits or to determine that the Corporation’s financial statements are complete and accurate and are in accordance with GAAP. Also, nothing herein should be construed as imposing on the Committee responsibility to ensure compliance with laws and regulations and the ethics compliance program. Such matters are the responsibilities of management and the independent accountant of the Corporation. Consequently, the Committee is not responsible for providing any expert or special assurance regarding the Corporation’s financial statements and other financial information, any internal controls over financial reporting or any professional certification regarding the independent accountant’s work, including without limitation its reports on and review of the Corporation’s financial statements and other financial information and its reports on the Corporation’s internal controls over financial reporting. Members of the Committee should not be assumed to be accounting experts and are not deemed to have accepted a duty of care greater than other members of the Board. 4 A-4
Appendix BANNUAL MEETING OF SHAREHOLDERS
Doubletree Park Place Hotel 1500 Park Place Boulevard Minneapolis, Minnesota LAKES ENTERTAINMENT, INC.June 2, 2010 3:00 P.M.
Corporate Governance Committee of
the Board of Directors | | | | | | LAKES ENTERTAINMENT, INC. FOR ANNUAL MEETING OF SHAREHOLDERS — June 2, 2010 | | proxy | |
Charter
I.Purpose.
The primary focus of the Corporate Governance Committee (the “Committee”)This proxy is solicited on the broad range of issues surrounding the composition and operation of Lakes Entertainment, Inc.’s (the “Company”) Board of Directors and committees thereof. The Committee provides assistance to the Board of Directors in the areas of membership selection, committee selection and rotation practices, evaluation of the overall effectivenessbehalf of the Board of Directors for use at the Annual Meeting on June 2, 2010.
The shares of stock you hold in your account or in a dividend reinvestment account will be voted as you specify on the reverse side. If no choice is specified, the proxy will be voted “FOR” Items 1, 2, and review3. By signing the proxy, you revoke all prior proxies and consideration of developments in corporate governance practices. The Committee’s goal is to assure that the composition, practicesappoint Lyle Berman and operation of the Board of Directors contribute to value creationTimothy J. Cope, and effective representation of the Company’s shareholders. II.Organization.
The Committee shall consist of two or more directors, each of whom shall satisfythem with full power of substitution, to vote your shares on the applicable independence requirements of The Nasdaq Stock Marketmatters shown on the reverse side and any other regulatory requirements thatmatters which may be applicable tocome before the Company from time to time.Annual Meeting and all adjournments.
Committee members shall be appointed by the Board of Directors on an annual basis at its annual organizational meeting; members shall serve until their successors are duly elected and qualified. Committee members may be removedSee reverse for any reason or no reason at the discretion of the Board of Directors, and the Board of Directors may fill any Committee vacancy that is created by such removal or otherwise. The Committee’s chairperson shall be designated by the full Board of Directors or, if it does not do so, the Committee members shall elect a chairperson by vote of a majority of the full Committee.
The Committee may form and delegate authority to subcommittees as the Company may deem appropriate in its sole discretion.
III.Structure and Meetings.
The Committee shall meet as often as its members deem necessary to perform the Committee’s responsibilities but in no event less than twice annually. At the request of the Committee, meetings may be held with members of management and with independent consultants.
The chairperson of the Committee will preside at each meeting and, in consultation with the other members of the Committee, will set the frequency and length of each meeting and the agenda of items to be addressed at each meeting. The chairperson of the Committee shall ensure
-1-
that the agenda for each meeting is circulated to each Committee member in advance of the meeting. The chairperson of the Committee shall prepare minutes of each meeting, which shall be provided to the other Committee members and the entire Board of Directors at the next regularly scheduled meeting of the Committee or the Board of Directors, as applicable. In addition, the Committee shall make regular reports to the Board of Directors and will propose any necessary action to the Board of Directors.
IV.Goals and Responsibilities.
In furtherance of its purposes, the Committee shall:
| (i) | | develop and recommend to the Board of Directors a set of corporate governance principles applicable to the Company, and review and reassess the adequacy of such guidelines annually and recommend to the Board of Directors any changes deemed appropriate; | | | (ii) | | evaluate the composition, organization and governance of the Board of Directors, determine future requirements and make recommendations to the Board of Directors for approval; | | | (iii) | | determine desired Board and committee skills and attributes; | | | (iv) | | review candidates for Board membership consistent with the Board of Directors’ criteria for selecting new directors, including a review of candidates for Board membership recommended by shareholders; | | | (v) | | annually recommend a slate of nominees to the Board of Directors to be considered for election or re-election at the Company’s annual shareholders’ meeting; | | | (vi) | | conduct the appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates; | | | (vii) | | administer the performance evaluation procedures for the Board of Directors, including conducting surveys of director observations, suggestions and preferences, and other procedures established by the Committee from time to time; | | | (viii) | | evaluate and consider matters relating to the qualifications and retirement of directors; | | | (ix) | | develop a plan for, and consult with the Board regarding, management succession; | | | (x) | | consider questions of possible conflicts of interest of Board members and of executive officers; |
-2-
| (xi) | | Identify and bring to the attention of the Board of Directors current and emerging corporate governance trends and issues that may affect the Company’ business operations, performance , public image or compliance with applicable laws; and | | | (xii) | | generally advise the Board of Directors on corporate governance matters. |
The Committee shall also advise the Board of Directors on (a) committee member qualifications, (b) appointments, removals and rotation of committee members, (c) committee structure and operations (including authority to delegate to subcommittees), and (d) committee reporting to the Board of Directors.
The Committee will review and reassess at least annually the adequacy of this Charter and recommend any proposed changes to the Board of Directors for approval.
The Committee shall perform any other activities consistent with this Charter, the Company’s Articles of Incorporation, Bylaws and governing law as the Committee or the Board of Directors deems appropriate.
V.Committee Resources.
The Committee shall have the authority to obtain advice and seek assistance from internal or external legal, accounting or other advisors. The Committee shall have the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve such search firm’s fees and other retention terms.
-3-
Appendix C
AMENDED AND RESTATED
LAKES ENTERTAINMENT, INC.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
This Amended and Restated Charter of the Compensation Committee of the Board of Directors (the “Board”) was adopted by the Board of Lakes Entertainment, Inc. (the “Company”) on December 4, 2006.
I.Purpose.
The primary purpose of the Compensation Committee (the “Committee”) is to discharge the responsibilities of the Board relating to compensation of the executive officers of the Company.
II.Membership and Procedures.
The Committee shall be comprised of not less than two members, each of whom satisfy the definition of “independent” under the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”). All Committee members shall also be “non-employee directors” as defined by Rule 16b-3 under the Securities Exchange Act of 1934 and “outside directors” as defined by Section 162(m) of the Internal Revenue Code.
Committee members will be appointed by the Board on an annual basis after nomination by the Corporate Governance Committee of the Board. Committee members shall serve until their resignation, retirement, removal by the Board or until their successors are duly appointed and qualified. Committee members may be removed by the Board in its sole discretion for any reason or no reason. The Board may fill any vacancy on the Committee. The chair of the Committee shall be designated by the full Board or, if it does not do so, the Committee members shall elect a chair by vote of a majority of the full Committee. The Committee shall have the authority to delegate any of its responsibilities to subcommittees as the Committee may deem appropriate, provided that the subcommittees are composed entirely of independent directors as provided in the foregoing paragraph.
III.Meetings.
The Committee shall meet as often as its members deem necessary to perform the Committee’s responsibilities but in no event less than twice annually. The Committee may request that any directors, officers or employees of the Company, or other persons whose advice and counsel are sought by the Committee, attend any meeting of the Committee to provide such pertinent information as the Committee requests.
The chair of the Committee will preside at each meeting and, in consultation with the other members of the Committee, will set the frequency and length of each meeting and the agenda of items to be addressed at each meeting. The chair of the Committee shall ensure that thevoting instructions.
agenda for each meeting is circulated to each Committee member in advance of the meeting. The Committee shall prepare minutes of each meeting, which shall be provided to all Committee members and the entire Board at the next regularly scheduled meeting of the Committee or the Board, as applicable. In addition, the Committee shall make regular reports to the Board and will propose any necessary action to the Board.
IV.Key Responsibilities.
The following functions shall be the common recurring activities of the Committee in carrying out its responsibilities. These functions are set forth as a guide with the understanding that the Committee may diverge as circumstances require.
| • | | Review the adequacy of the Company’s compensation plans and programs in general on an annual basis, comparing such plans and programs to those utilized by the Company’s peer group; review the appropriateness of management incentives to ensure that such incentives are aligned with the interests of the Company’s shareholders; report the results of, and recommendations resulting from, such reviews to the Board. | | | • | | Review periodically executive compensation at the Company, such as salary, bonus, equity-based incentives and miscellaneous benefits, and modify as necessary to optimize performance and remain competitive. | | | • | | Meet with the Company’s management, and if deemed appropriate, independent outside professional compensation advisors to review current trends and practices in executive compensation and disclosure requirements under various securities rules and regulations. | | | • | | Review and approve all compensation arrangements between the Company and its executive officers (the Company’s Chief Executive Officer may be present at the meeting deliberations on this subject, but is not allowed to vote on these matters). | | | • | | Review and approve the Company’s goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and have sole authority to determine the CEO’s compensation level based on this evaluation (the Company’s Chief Executive Officer may not be present during the deliberations or vote on these matters). | | | • | | Review and discuss the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K for inclusion in the Company’s annual shareholder meeting proxy statement, Annual Report on Form 10-K or information statement, as the case may be, and based on such review and discussion determine whether or not to recommend to the Company’s Board of Director that such Compensation Discussion and Analysis be included in such filing. | | | • | | Prepare and issue a compensation committee report for inclusion in the Company’s annual shareholder meeting proxy statement in accordance with applicable rules and regulations of the SEC and Nasdaq and any other report |
2
| | | or other disclosure required to be prepared by the Committee pursuant to the rules of the SEC and Nasdaq for inclusion in the Company’s annual shareholder meeting proxy statement or other SEC filings. | | |
| | Shareholder Services P.O. Box 64945 St. Paul, MN 55164-0945 | | COMPANY #
| | | | | | | • | | Administer all equity compensation plans and grant awards under these plans in | Vote by Internet, Telephone or Mail 24 Hours a manner consistent with each plan’s intended purpose and recommend changes in such plans to the Board as needed; provided, however, the Committee may delegate to the President authority to grant awards under the Company’s equity compensation plans to persons who are not serving as executive officers of the Company or deemed to beDay, 7 Days a “named executive officer” of the Company within the meaning of SEC rules and regulations; provided further, that no such award for any one individual may exceed 10,000 shares without the prior approval of the Committee.Week | | | | | | | • | | Establish | Your phone or Internet vote authorizes the named proxies to vote your shares in the manner as if you marked, signed and approve cash and equity compensation for members of the Board and annually compare such compensation to companies within the Company’s peer group and to companies of comparable size.returned your proxy card. | | | | | | | • | | Investigate or have investigated any variance or matter of concern brought | •INTERNET— www.eproxy.com/laco Use the Internet to the Committee’s attention that is within the scope of its duties.vote your proxy until 12:00 p.m. (CDT) on June 1, 2010. | | | | | | | • | | Evaluate its own performance | •PHONE — 1-800-560-1965 Use a touch-tone telephone to vote your proxy until 12:00 p.m. (CDT) on an annual basis and present the results of such evaluation to the Board.June 1, 2010. | | | | | | | • | | Review | •MAIL —Mark, sign and date your proxy card and return it in the adequacy of this Charter on an annual basis and recommend any proposed changespostage-paid envelope provided | | | | | | | | | | If you vote your proxy by Internet or by Telephone, you do NOT need to the Board for approval.mail back your Proxy Card. |
V.Authority.
The Committee will have the authority, to the extent it deems necessary or appropriate, to retain a compensation consultant to assist in the evaluation of the Chief Executive Officer or executive officer compensation. The Committee shall have the sole authority to approve such consultant’s fees and other retention terms. The Committee shall also have the authority, to the extent it deems necessary or appropriate, to retain other advisors. The Company will provide appropriate funding, as determined by the Committee, for payment of compensation to any consulting firm or other advisors hired by the Committee.
3
Appendix DTO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD.
LAKES ENTERTAINMENT, INC.
AMENDED AND RESTATED 2007 STOCK OPTION AND COMPENSATION PLANòPlease detach hereò
Section 1. PurposeThe Board of Directors unanimously recommends that you vote “FOR” the Plan; Effect on Prior Plans
(a) Purposeelection of the Plan.The purpose of the Plan is to aid Lakes Entertainment, Inc. (the “Company”) in recruiting and retaining employees, officers, non-employee Directors, and other Consultants capable of assuring the future success of the Company through the grant of Awards to such persons under the Plan. The Company expects that Awards of stock-based compensation and opportunitiesall nominees for stock ownership in the Company will provide incentives to Plan participants to exert their best efforts for the success of the Company’s business and thereby align the interests of Plan Participants with those of the Company’s stockholders.
(b) Effect on Prior Plans.All outstanding awards previously granted under the Company’s 1998 Stock Option and Compensation Plan, and under the Company’s 1998 Director Stock Option Plan prior to the date of stockholder approval of the Plan shall remain outstanding in accordance with their terms.
Section 2. Definitions
The following capitalized terms used in the Plan have the meanings set forth in this Section:
(a) “Affiliate”means (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.
(b) “Award”means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Dividend Equivalent, Performance Award, Stock Award, Other Stock-Based Award, or Cash Award granted under the Plan.
(c) “Award Agreement”means any written agreement, contract or other instrument or document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.
(d) “Board”means the Board of Directors named in this proxy statement and “FOR” the ratification of the Company.
(e) “Cash Award”means any Award granted under Section 7(d)appointment of the Plan that is payable in cash and denominatedPBTK as a “Cash Award.”
(f) “Change in Control”means the occurrence of any of the following:
(i) Any person or group of persons becomes the beneficial owner of thirty percent (30%) or more of any equity security of the Company entitled to voteour independent registered public accounting firm for the election of Directors;
(ii) A majority of the members of the Board is replaced within a period of less than two (2) years by Directors not nominated and approved by the Board.
(iii) The stockholders of the Company approve an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company’s assets (including a plan of liquidation).
For purposes hereof, beneficial ownership by a person or group of persons shall be determined in accordance with Regulation 13D-G (or any similar successor regulation) promulgated by the Securities and Exchange Commission pursuant to the Exchange Act. Beneficial ownership of more than thirty percent (30%) of an equity security may be established by any reasonable method, but shall be presumed conclusively as to any person who files a Schedule 13D or 13G report with the Securities and Exchange Commission reporting such ownership.
(g) “Code”means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
(h) “Committee”means the Compensation Committee of the Board or any successor committee of the Board designated by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Section 162(m) of the Code. The Company expects to have the Plan administered in accordance with the requirements of the “qualified performance-based compensation” exception under Section 162(m) of the Code, to the extent applicable.
(i) “Company”means Lakes Entertainment, Inc., a Minnesota corporation.
(j) “Consultant”means an individual who renders services to the Company in a non-employee capacity, including a Non-employee Director.
(k) “Director”means a member of the Board.
(l) “Dividend Equivalent”means any right granted under Section 7(e) of the Plan.
(m) “Eligible Person”means any employee, officer or Consultant of the Company or any Affiliate whom the Committee determines to be an Eligible Person.
(n) “Exchange Act”means the Securities Exchange Act of 1934, as amended.
(o)“Fair Market Value”means, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property
2
determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, unless otherwise determined by the Committee, the Fair Market Value of Shares on a given date for purposes of the Plan shall be the closing sale price of the Shares on the principal United States Securities Exchange registered under the Exchange Act on which the Shares are listed (the “Exchange”) on the applicable date. If the Exchange is closed for trading on such date, then the last sale price used shall be the one on the date the Shares last traded on the Exchange.
(p) “Incentive Stock Option”means an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision, as set forth in part in Section 6(a)(v).
(q) “Non-employee Director”means a Director who is not an employee of the Company or an Affiliate.
(r) “Non-Qualified Stock Option”means an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(s) “Option”means an Incentive Stock Option or a Non-Qualified Stock Option.
(t) “Other Stock-Based Award”means any stock-based right granted under Section 7(d) of the Plan.
(u) “Participant”means an Eligible Person who is designated by the Committee to be granted an Award under the Plan.
(v) “Performance Award”means any right granted under Section 7(b) of the Plan.
(w)“Performance Goals”means the goals established by the Committee, which shall be satisfied or met as a condition to the exercisability, vesting or receipt of all or a portion of an Award. Such goals shall be based exclusively on one or more of the following corporate-wide or subsidiary, division or operating unit financial measures: (1) pre-tax or after-tax income (before or after allocation of corporate overhead and bonus), (2) net income (before or after taxes), (3) reduction in expenses, (4) pre-tax or after-tax operating income, (5) earnings (including earnings before taxes, earnings before interest and taxes, or earnings before interest, taxes, depreciation and amortization, (6) gross revenue, (7) working capital, (8) profit margin or gross profits, (9) Share price, (10) cash flow or cash flow per Share (before or after dividends), (11) cash flow return on investment, (12) return on capital (including return on total capital or return on invested capital), (13) return on assets or net assets, (14) market share, (15) pre-tax or after-tax earnings per Share, (16) pre-tax or after-tax operating earnings per Share, (17) total stockholder return, (18) growth measures, including revenue growth, as compared with a peer group or other benchmark, (19) economic value-added models or equivalent metrics, (20) comparisons with various stock market indices, (21) improvement in or attainment of expense levels or working capital levels, (22) operating margins, gross margins or cash margins, (23) year-end cash, (24) debt reductions, (25) stockholder equity, (26) regulatory achievements, (27) implementation, completion or attainment of measurable objectives with respect to research, development, products or
3
projects, production volume levels, acquisitions and divestitures and recruiting and maintaining personnel, (28) customer satisfaction, (29) operating efficiency, productivity ratios, (30) strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market penetration, geographic business expansion goals (including accomplishing regulatory approval for projects), cost or cost savings targets, accomplishing critical milestones for projects, and goals relating to acquisitions or divestitures, or any combination thereof (in each case before or after such objective income and expense allocations or adjustments as the Committee may specify within the applicable period). Each such goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions and/or operating units) and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital (including, but limited to, the cost of capital), stockholders’ equity and/or shares outstanding, or to assets or net assets. In all cases, the performance goals shall be such that they satisfy any applicable requirements under Treas. Reg. Sec. 1.162-27(e)(2) (as amended from time to time) that the achievement of such goals be “substantially uncertain” at the time that they are established, and that the award opportunity be defined in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goal has been met, and, subject to the Committee’s right to apply negative discretion (within the meaning of Treas. Reg. Sec. 1.162-27(d)(iii)), the amount of the Award payable as a result of such performance. To the extent applicable, the measures used in setting performance goals set under the Plan for any given performance period shall be determined in accordance with GAAP and in a manner consistent with the methods used in the Company’s audited financial statements, without regard to: (i) extraordinary items as determined by the Company’s independent public accountants in accordance with GAAP; (ii) changes in accounting, unless, in each case, the Committee decides otherwise within the applicable period; or (iii) non-recurring acquisition expenses and restructuring charges. Notwithstanding the foregoing, in calculating operating earnings or operating income (including on a per Share basis), the Committee may, within the applicable period for a given performance period, provide that such calculation shall be made on the same basis as reflected in a release of the Company’s earnings for a previously completed period as specified by the Committee. For purposes hereof, the “applicable period,” with respect to any performance period, is the period commencing on or before the first day of the performance period and ending no later than the earlier of (x) the ninetieth (90th) day of the performance period, or (y) the date on which twenty-five percent (25%) of the performance period has been completed.
(x) “Person”means any individual, corporation, partnership, association or trust.
(y) “Plan”means the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan, as may be amended from time to time.
(z) “Restricted Stock”means any Share granted under Section 7(a) of the Plan.
4
(aa) “Restricted Stock Unit”means any unit granted under Section 7(a) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.
(bb) “Rule 16b-3”means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or regulation.
(cc) “Section 162(m)”means Section 162(m) of the Code, or any successor provision, and the applicable Treasury Regulations promulgated thereunder.
(dd) “Shares”means shares of common stock, par value of $0.01 per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c)of the Plan.
(ee) “Stock Appreciation Right”means any right granted under Section 6(b) of the Plan.
(ff)“Stock Award”means any Share granted under Section 7(c) of the Plan.
Section 3. Administration2010 fiscal year.
(a) Power and Authority of the Committee.The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement, provided, however, that, except as otherwise provided in Section 4(c) hereof, the Committee shall not, without receiving prior approval of the Company’s shareholders, reprice, adjust or amend the exercise price of Options or the grant price of Stock Appreciation Rights previously awarded to any Participant, whether through amendment, cancellation and replacement grant, or any other means; (vi) accelerate the exercisability of any Award or the lapse of restrictions relating to any Award; (vii) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (viii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable to a Participant with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder of the Award or the Committee; (ix) interpret and administer the Plan and any instrument or agreement, including any Award Agreement, relating to the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and
5
binding upon any Participant, any holder or beneficiary of any Award or Award Agreement, and any employee or Consultant of the Company or any Affiliate.
(b) Action of the Committee.A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either: (a) acts of a majority of the members of the Committee present at any meeting at which a quorum is present; or (b) acts approved in writing by a majority of the members of the Committee without a meeting. The Committee may appoint a chairman or a secretary as it deems appropriate.
(c) Delegation.The Committee may delegate its powers and duties under the Plan to one or more Directors or executive officers of the Company, or a committee of Directors or executive officers, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the Committee may not delegate its power and authority with regard to: (a) the grant of an Award to any person who is a “covered employee” within the meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period an Award hereunder to such employee would be outstanding; or (b) the selection for participation in the Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an Award to such an officer or other person.
(d) Power and Authority of the Board of Directors.Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan, unless the exercise of such powers and duties by the Board would cause the Plan not to comply with the requirements of Section 162(m) of the Code.
(e) Liability and Indemnification of Plan Administrators.No member of the Board or Committee, nor any executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan in good faith, and the members of the Board, the Committee and the executive officers shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company’s Articles of Incorporation, Bylaws, and under any directors’ and officers’ liability insurance that may be in effect from time to time.
Section 4. Shares Available for Awards
(a)Shares Available.Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under all Awards under the Plan shall be 2,500,000. Shares to be issued under the Plan will be authorized but unissued Shares or Shares that have been reacquired by the Company and designated as treasury shares. Shares that are subject to Awards that terminate, lapse or are cancelled or forfeited shall be available again for grant under the Plan. Shares that are tendered by
6
a Participant or withheld by the Company as full or partial payment to the Company of the purchase or exercise price relating to an Award or to satisfy tax withholding obligations relating to an Award shall not be available for future grants under the Plan. In addition, if Stock Appreciation Rights are settled in Shares upon exercise, the aggregate number of Shares subject to the Award rather than the number of Shares actually issued upon exercise shall be counted against the number of Shares authorized under the Plan.
(b) Accounting for Awards.For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.
(c) Adjustments.In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is required to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of: (a) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards; (b) the number and type of Shares (or other securities or other property) subject to outstanding Awards; and (c) the purchase or exercise price with respect to any Award.
Additionally, in the event that a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employees or Directors prior to such acquisition or combination.
7
(d) Award Limitations.
(i)162(m) Limitation. No Participant may be granted an Award or Awards under the Plan for more than 400,000 Shares (subject to adjustment as provided in Section 4(c) of the Plan) in the aggregate, or, in the case of a Cash Award pursuant to Section 7(d), for more than $200,000 in any calendar year.
(ii)Incentive Stock Option Limitation.The aggregate number of Shares which may be issued under Incentive Stock Options is 500,000 (subject to adjustment as provided in Section 4(c) of the Plan).
Section 5. Eligibility
Any Eligible Person may be designated to be a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services provided by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. The Committee’s selection of an Eligible Person to be a Participant with respect to an Award shall not require the Committee to select such Eligible Person to receive any other Award at any time.
An Incentive Stock Option may be granted to full-time or part-time employees (which term as used herein includes, without limitation, officers and Directors who are also employees) only, and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a “subsidiary corporation” of the Company within the meaning of Section 424(f)of the Code or any successor provision.
Notwithstanding anything in this Section 5 to the contrary, a Non-employee Director shall be a Participant with respect to the Option granted to him or her pursuant to Section 6(a)(iv) of the Plan.
Section 6. Options and Stock Appreciation Rights.
(a) Options.The Committee may grant Options with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i)Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee and shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option; provided, however, that the Committee may designate a per share exercise price below Fair Market Value on the date of grant if the Option is granted in substitution for a stock option previously granted by an entity that is acquired by or merged with the Company or an Affiliate.
(ii)Option Term. The term of each Option shall be fixed by the Committee but shall not be longer than 10 years from the date of grant.
8
(iii)Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms in which, payment of the exercise price with respect thereto may be made or deemed to have been made.
(iv)Special Rules for Non-Employee Directors.Notwithstanding the preceding provisions of this Section 6(a), each Non-employee Director, upon becoming a Non-employee Director, shall receive a Non-qualified Stock Option to purchase 25,000 Shares, which Option shall be subject to the following terms:
(A) The Option may not be exercised before the expiration of one year from its date of grant.
(B) Each year that the Non-employee Director continues to serve on the Board, beginning with the first anniversary of the date of grant of the Option, twenty-five percent (25%) of the total number of Shares covered by the Option shall become exercisable; provided, however, that the Option shall become exercisable immediately in full in the event of: (I) the death of the Non-employee Director while serving as a Non-employee Director; (II) the removal of the Non-employee Director from the Board without cause; (III) the failure to re-nominate or re-elect the Non-employee Director to the Board; (IV) the occurrence of a Change in Control of the Company while the Non-employee Director is serving as a Non-employee Director; and (V) the voluntary resignation of the Non- Employee Director from the Board, provided a majority of the Board members (excluding the Non-Employee Director) agree to accelerate the vesting of the Option and determines in good faith that such acceleration is in the best interest of the Company.
(C) If a person ceases to be a Non-employee Director for reasons other than death while holding an Option, such person may, at any time within three (3) years of the date he or she ceases to be a Non-employee Director (but in no event after the Option has expired pursuant to Section 6(a)(ii)) exercise the Option to the extent the Option was exercisable as of the date he or she ceased to be a Non-employee Director.
(D) If any person who is or was a Non-employee Director dies while holding an Option, his executors, administrators, heirs or distributees, as the case may be, may, at any time within one year after the person’s date of death (but in no event after the Option has expired pursuant to Section 6(a)(ii)), exercise the Option to the extent the Option was (or became) exercisable as of the date of the person’s death.
(E) In all other respects the Option shall conform to the requirements set forth in 6(a)(i) through 6(a)(iii), above.
(v)Incentive Stock OptionsNotwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of Options that are intended to qualify as Incentive Stock Options:
9
(A) The aggregate Fair Market Value (determined as of date the Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all of the Company’s plans) shall not exceed $100,000.
(B) Any Award Agreement granting Incentive Stock Options under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order for the Award to qualify as an Incentive Stock Option.
(C) All Incentive Stock Options must be granted within ten (10) years from the earlier of the date on which the Plan is adopted by the Board or the date the Plan is approved by the stockholder of the Company.
(D) No Incentive Stock Option shall be granted to a Participant who, at the time of grant would own (within the meaning of Section 422 of the Code) stock possessing more than ten percent (10%) of the total combined voting power of the Company (within the meaning of Section 422 of the Code).
(b) Stock Appreciation Rights.The Committee may grant Stock Appreciation Rights subject to the terms of the Plan and such additional terms and conditions not inconsistent with the provision of the Plan as the Committee shall determine. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive in cash or Shares (as specified by the Committee) upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right; provided, however, that the Committee may designate a per share grant price below Fair Market Value on the date of grant if the Stock Appreciation Right is granted in substitution for a stock appreciation right previously granted by an entity that is acquired by or merged with the Company or an Affiliate.
Section 7. Restricted Stock, Restricted Stock Units, Performance Awards, Stock Awards, Other Stock-Based Awards and Cash Awards, Dividend Equivalents
(a) Restricted Stock and Restricted Stock Units.The Committee may grant Awards of Restricted Stock and Restricted Stock Units with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i)Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect
10
thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. The minimum vesting period of such Awards shall be one year from the date of grant. Notwithstanding the foregoing, the Committee may permit acceleration of vesting of such Awards in the event of the Participant’s death, disability or retirement.
(ii)Issuance and Delivery of Shares. Any Restricted Stock granted under the Plan shall be issued at the time such Awards are granted and may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions applicable to such Restricted Stock. Shares representing Restricted Stock that is no longer subject to restrictions shall be delivered to the Participant promptly after the applicable restrictions lapse or are waived. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holder of the Restricted Stock Units.
(iii)Forfeiture. Except as otherwise determined by the Committee, upon a Participant’s termination of employment or cessation of services as a Consultant, including resignation or removal as a Director (in either case, as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units held by the Participant at such time shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units.
(b) Performance Awards.The Committee may grant Performance Awards denominated in Shares that may be settled or payable in Shares (including, without limitation, Restricted Stock or Restricted Stock Units) or cash. Performance Awards granted to Participants who may be “covered employees” under Section 162(m) of the Code are intended to be “qualified performance-based compensation” within the meaning of Section 162(m). Performance Awards shall, to the extent required by Section 162(m), be conditioned solely on the achievement of one or more objective Performance Goals, and such Performance Goals shall be established by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). Subject to the terms of the Plan and any applicable Award Agreement, the Performance Goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award, and any other terms and conditions of any Performance Award shall be determined by the Committee. The Committee shall also certify in writing that such Performance Goals have been met prior to payment of the Performance Awards to the extent required by Section 162(m).
11
(c) Stock Awards.The Committee may grant Shares without restrictions thereon in its discretion. Subject to the terms of the Plan, Stock Awards may have such terms and conditions as the Committee shall determine.
(d) Other Stock-Based Awards and Cash Awards.The Committee may grant such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. The Committee shall determine the terms and conditions of such Awards, subject to the terms of the Plan and the Award Agreement. Shares, or other securities delivered pursuant to a purchase right granted under this Section 7(d), shall be purchased for consideration having a value equal to at least 100% of the Fair Market Value of such Shares or other securities on the date the purchase right is granted. In addition the Committee may, in its discretion, grant Cash Awards to Eligible Employees according to such terms and conditions as the Committee may establish, subject to the terms of the Plan and the Award Agreement.
(e) Dividend Equivalents.The Committee may grant Dividend Equivalents under which the Participant shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of any cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan, such Dividend Equivalents may have such terms and conditions as the Committee shall determine.
Section 8. General Rules Applicable to Awards
(a) Consideration for Awards.Awards may be granted for no cash consideration or for any cash or other consideration as may be determined by the Committee or required by applicable law.
(b) Awards May Be Granted Separately or Together.Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(c)Forms of Payment under Awards.Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property, withholding Shares otherwise issuable under the Award, or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on
12
installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments.
(d) Term of Awards.The term of each Award shall be for a period not longer than 10 years from the date of grant.
(e) Limits on Transfer of Awards.Except as otherwise provided by the Committee or the terms of this Plan, no Award and no right under any such Award shall be transferable by a Participant other than by will or by the laws of descent and distribution. The Committee may establish procedures as it deems appropriate for a Participant to designate a Person or Persons, as beneficiary or beneficiaries, to exercise the rights of the Participant and receive any property distributable with respect to any Award in the event of the Participant’s death. The Committee, in its discretion and subject to such additional terms and conditions as it determines, may permit a Participant to transfer a Non-Qualified Stock Option to any “family member” (as such term is defined in the General Instructions to Form S-8 (or any successor to such Instructions or such Form) under the Securities Act of 1933, as amended) at any time that such Participant holds such Option, provided that such transfers may not be for value (i.e., the transferor may not receive any consideration therefor) and the family member may not make any subsequent transfers other than by will or by the laws of descent and distribution. Each Award under the Plan or right under any such Award shall be exercisable during the Participant’s lifetime only by the Participant (except as provided herein or in an Award Agreement or amendment thereto relating to a Non-Qualified Stock Option) or, if permissible under applicable law, by the Participant’s guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.
(f) Restrictions; Securities Exchange Listing.All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may cause appropriate entries to be made or legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.
Section 9. Change in Control
Notwithstanding anything in the Plan or an Award Agreement to the contrary: (a) the restrictions on all Awards of Restricted Stock and Restricted Stock Units shall lapse; (b) all outstanding Options and Stock Appreciation Rights shall become exercisable; (c) the performance requirements applicable to all Performance Shares shall be deemed to have been met and payment made immediately, if subsequent to the date that the Plan is approved by the Board a Change in Control occurs unless otherwise
13
determined by the Board and a majority of the Continuing Directors. For purposes of this Section 7, a “Continuing Director” is a Director who: (i) was a Director at the time any of the events described in Section 2(f) constituting a Change in Control occurred or at the time any person publicly announces an intention to acquire twenty percent (20%) or more of the equity securities of the Company; (ii) has held the position of Director for more than two (2) years as of the applicable date in (i), above; or (iii) is a Director nominated and approved by the Continuing Directors.
Subject to the preceding paragraph, in the event that the Company is a party to a merger, exchange or reorganization, outstanding Awards shall be subject to the terms and conditions of the agreement of merger, exchange or reorganization, which may include, without limitation, accelerating the vesting or exercise date of Awards and the cancellation of outstanding Awards in exchange for the immediate distribution of a cash payment equal to: (a) in the case of Options and Stock Appreciation Rights, the difference between the Fair Market Value on the date of the Change of Control and the exercise price multiplied by the number of Shares subject to the Option or Stock Appreciation Right, and (b) in the case of Restricted Stock, Restricted Stock Units, and Performance Stock Awards, the Fair Market Value of a Share on the date of the Change in Control multiplied by the number of Shares then subject to the Award.
Section 10. Amendment and Termination; Corrections
(a) Amendments to the Plan.The Board may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, prior approval of the stockholders of the Company shall be required for any amendment to the Plan that:
(i) requires stockholder approval under the rules or regulations of the Securities and Exchange Commission, the NASDAQ Stock Market LLC, or any other securities exchange that are applicable to the Company;
(ii) increases the number of shares authorized under the Plan as specified in Section 4(a) of the Plan;
(iii) increases the number of Shares subject to the limitations contained in Section 4(d) of the Plan;
(iv) permits repricing of Options or Stock Appreciation Rights without prior shareholder approval;
(v) permits the award of Options or Stock Appreciation Rights at a price less than 100% of the Fair Market Value of a Share on the date of grant of such Option or Stock Appreciation Right, contrary to the provisions of Sections 6(a)(i) and 6(b)(ii) of the Plan; or
(vi) would cause Section 162(m) of the Code to become unavailable with respect to the Plan.
(b)Amendments to Awards.Subject to the provisions of the Plan, the Committee may waive any conditions of or rights of the Company under any
14
outstanding Award, prospectively or retroactively. Except as otherwise provided in the Plan, the Committee may amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, but no such action may adversely affect the rights of the holder of such Award without the consent of the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies.The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award or Award Agreement in the manner and to the extent it shall deem desirable to implement or maintain the effectiveness of the Plan.
Section 11. Tax Withholding
The Company may take such action as it deems appropriate to withhold or collect from a Participant the applicable federal, state, local or foreign payroll, withholding, income or other taxes that are required to be withheld or collected by the Company upon the grant, exercise, vesting or payment of an Award. The Committee may require the Company to withhold Shares having a Fair Market Value equal to the amount necessary to satisfy the Company’s minimum statutory withholding requirements upon the grant, exercise, vesting or payment of an Award from Shares that otherwise would have been delivered to a Participant. The Committee may, subject to any terms and conditions that the Committee may adopt, permit a Participant to elect to pay all or a portion of the minimum statutory withholding taxes by: (a) having the Company withhold Shares otherwise to be delivered upon the grant, exercise, vesting or payment of an Award with a Fair Market Value equal to the amount of such taxes; (b) delivering to the Company Shares other than Shares issuable upon the grant, exercise, vesting or payment of an Award with a Fair Market Value equal to the amount of such taxes; or (c) paying cash. Any such election must be made on or before the date that the amount of tax to be withheld is determined.
Section 12. General Provisions.
(a) No Rights to Awards.No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.
(b) Award Agreements.No Participant shall have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.
(c) No Rights of Stockholders.Except with respect to Restricted Stock and Stock Awards, neither a Participant nor the Participant’s legal representative shall be, or have any of the rights and privileges of, a stockholder of the Company with respect to any Shares issuable upon the exercise or payment of any Award, in whole or in part, unless and until the Shares have been issued.
15
(d) No Limit on Other Compensation Plans or Arrangements.Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation plans or arrangements.
(e) No Right to Employment, Directorship, or to Provide Other Services.The grant of an Award shall not be construed as giving a Participant the right to be retained as an employee of the Company or any Affiliate, or a Director to be retained as a Director, nor any other service provider to be retained by the Company, nor will it affect in any way the right of the Company or an Affiliate to terminate a Participant’s employment or other services at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment or other services for the Company free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law.The internal law, and not the law of conflicts, of the State of Minnesota, shall govern all questions concerning the validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award.
(g) Severability.If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.
(h) No Trust or Fund Created.Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(i) Securities Matters.The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.
(j) No Fractional Shares.No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Share or whether such fractional Share or any rights thereto shall be canceled, terminated or otherwise eliminated.
(k) Headings.Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
16
Section 13. Effective Date of the Plan
The Plan in its original form became effective as of June 6, 2007, the date stockholders of the Company approved the Plan at the annual meeting of stockholders of the Company held on such date; provided, however, amending and restating of the Plan shall be subject to and be effective upon approval by the stockholders of the Company at the annual meeting of stockholders of the Company to be held on August 6, 2009.
Section 14. Term of the Plan
The Plan shall terminate at midnight on June 5, 2017, unless terminated before then by the Board. Awards may be granted under the Plan until the Plan terminates or until all Shares available for Awards under the Plan have been purchased or acquired; provided, however, that Incentive Stock Options may not be granted following the 10-year anniversary of the Board’s adoption of the Plan. The Plan shall remain in effect as long as any Awards are outstanding.
17
(LAKES ENTERTAINMENT LOGO) |
Doubletree Park Place Hotel 1500 Park Place Boulevard Minneapolis, Minnesota |
LAKES ENTERTAINMENT, INC.
FOR ANNUAL MEETING OF SHAREHOLDERS — AUGUST 6, 2009 proxy |
The undersigned, a shareholder of Lakes Entertainment, Inc. (the “Company”), hereby appoints Lyle Berman and Timothy J. Cope, and each of them as proxies (each with the power to act alone and with full power of substitution), to vote on behalf of the undersigned the number of shares of the Company’s common stock that the undersigned is then entitled to vote, at the Annual Meeting of Shareholders of Lakes Entertainment, Inc. to be held at the Doubletree Park Place Hotel, 1500 Park Place Boulevard, Minneapolis, Minnesota on August 6, 2009 at 3:00 p.m., and at any and all adjournments and postponements thereof (the “Annual Meeting”), as specified below on the matters referred to and in their discretion upon any other matters brought before the Annual Meeting, with all the powers which the undersigned would possess if personally present. |
The undersigned hereby revokes all previous proxies relating to the shares covered hereby and acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement relating to the Annual Meeting. |
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY’S BOARD OF DIRECTORS. |
When properly executed, this proxy will be voted on the proposals set forth herein as directed by the shareholder, but if no direction is made in the space provided, all shares represented by proxies will be voted for the resolution reducing the number of members of the Board of Directors, for the election of the nominees for the Board of Directors named in the proxy statement, for the approval of the amendment to the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to increase the number of shares of common stock authorized for awards from 500,000 to 2,500,000, for the amendment to the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to permit repricing, adjustment or amendment to the exercise price of Options or the grant price of Stock Appreciation Rights previously awarded, with shareholder approval, for the approval of a value-for-value stock option exchange program, and for the ratification of the appointment of PBTK as the Company’s independent registered public accounting firm for the 2009 fiscal year. |
See reverse for voting instructions. |
39
The Board of Directors unanimously recommends that you vote “FOR” the resolution reducing the number of members of the Board of Directors, “FOR” the election of all nominees for the Board of Directors named in this proxy statement, “FOR” the approval of the amendment to the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to increase the number of shares of our common stock authorized for awards from 500,000 to 2,500,000, “FOR” the approval of an amendment to the lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to permit repricing, adjustment or amendment to the exercise price of Option or the grant price of Stock Appreciation Rights previously awarded, with shareholder approval, “FOR” the approval of a value-for-value stock option exchange program, and “FOR” the ratification of the appointment of PBTK as our independent registered public accounting firm for the 2009 fiscal year. |
1. The adoption of a resolution to reduce the number of members of the Board of Directors from eight to seven£ For£ Against£ Abstain |
2. | Election of directors: |
| | | | | | | | | | | | | |
01 Lyle Berman 04 Ray Moberg
| | 02 Timothy J. Cope 05 Larry C. Barenbaum
| | 03 Morris Goldfarb FOR all nominees WITHHOLD |
04 Neil I. Sell 05 Ray Moberg 06 Larry C. Barenbaum£ (except as marked£ vote for all |
07 Richard D. White
| | o
| | FORall nominees (except as marked to the contrary below) | | o
| | WITHHOLD vote for all nominees listed |
| | | | | |
| | | (Instructions: To withhold authority to vote for any individual nominee, write that nominee’s name in the box provided to the right.) | | | | | |
3. The approval of an amendment to the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to increase the number of shares of our common stock authorized for awards from 500,000 to 2,500,000£ For£ Against£ Abstain | | | | | | | | | | | | | | |
|
4. The approval of an amendment to the Lakes Entertainment, Inc. 2007 Stock Option and Compensation Plan to permit repricing, adjustment or amendment to the exercise price of Options or the grant price of Stock Appreciation Rights previously awarded, with shareholder approval£ For£ Against£ Abstain2. |
5. Subject to approval of items 3 and 4 above, the approval of a value-for-value stock option exchange program£ For£ Against£ Abstain |
6. The ratification of the appointment of Piercy Bowler Taylor & Kern, Certified Public Accountants, as our independent registered public accounting firm for the 20092010 fiscal year£ | | o | | For£ | | o | | Against£ | | o | | Abstain |
7. | | | | | | | | | | | | | | | 3. | | The transaction of any other business as may properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting£ | | o | | For£ | | o | | Against£ | | o | | Abstain |
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. | | | | |
|
Address Change? Mark Box Indicate changes below:£ | | o | | Dated: , 20092010 |
| | | |
| | | | | | | | | | | | | | | | | | | | Signature(s) in Box (Shareholder (Shareholder must sign exactly as the name appears at left. When signed as a corporate officer, executor, administrator, trustee, guardian, etc., please give full title as such. Both joint tenants must sign.) IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2009 ANNUAL |
MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 6, 2009.
The Company’s Proxy Statement for the 2009 Annual Meeting of Shareholders and 2009 Annual Report to Shareholders are
available atwww.lakesentertainment.com under “Proxy filings” in the “Investor Relations” section.
40
|